Liability of Members and Officers Post Reduction of Capital

# Liability of Members and Officers After Reduction of Capital

When a company reduces its share capital under Section 66 of the Companies Act, 2013, certain residual liabilities can attach to past members and contributories. This protects creditors who were not aware of the reduction.

## Liability of Members (Contributories)

When the Tribunal orders a reduction and the Registrar registers it:

• Who is liable? Every person who was a member of the company on the date of the registration of the order for reduction.
• What is the liability? To contribute to the payment of debts or claims of creditors.
• What is the cap? The liability is limited to the amount the person would have been liable to contribute if the company had commenced winding up on the day immediately before the registration date.

### If the Company is Wound Up

Where a creditor proves ignorance of the reduction proceedings, the Tribunal may, on the creditor's application:

1. Settle a list of persons liable to contribute.

2. Make and enforce calls and orders on those contributories — as if they were ordinary contributories in a winding up.

## Rights of Contributories Inter Se Preserved

Sub-section (9) is an overriding provision: nothing in sub-section (8) shall affect the rights of contributories among themselves. So the reduction does not disturb the internal arrangement of liability between contributories.

## Liability of Officers — Section 447

An officer of the company is liable for punishment under Section 447 (punishment for fraud) if he:

• Knowingly conceals the name of any creditor entitled to object to the reduction, or abets or is privy to such concealment; OR
• Knowingly misrepresents the nature or amount of the debt or claim of any creditor, or abets or is privy to such misrepresentation.

## Key Definitions